More help needed for borrowers

The Government should give struggling mortgage borrowers more help to avoid repossession by keeping some temporary benefit arrangements in place for at least another year, lenders have urged.

The Council of Mortgage Lenders (CML) said repossessions have so far been kept down to a much greater extent than predicted due to the Support for Mortgage Interest (SMI) scheme, which helps those having trouble with their mortgage payments.

The CML said a more generous availability of SMI has helped a decline in repossessions over the last couple of years, which dropped to 37,000 in 2011.

But it expects to see repossessions rise to 45,000 this year, due to the uncertain economy and tough employment conditions, at a time when household budgets remain under huge pressure.

The body, whose members are banks, building societies and other lenders, said that the decision to offer SMI on more generous terms over the last three years had helped nearly 250,000 people to remain in their homes at any one time.

It said two changes to the scheme had played a “critical” part in keeping repossessions down - the introduction of a shorter three-month qualifying period before people receive help instead of 39 weeks and a temporary extension to the size of loans covered by SMI from £100,000 to £200,000.

These temporary arrangements are due to be scaled back from next year if there is no further extension, the CML said.

The lending body said in its fortnightly newsletter: “Our response urges the Government to keep both of these measures in place for another year.

“Over the last three years, paying SMI after a three-month qualifying period and providing more generous cover have helped nearly 250,000 people stay in their homes at any one time.”

The CML said the current £200,000 cap on mortgages qualifying for SMI is a more accurate reflection of today’s house prices.

According to Halifax, the average house price stood at £192,000 in 2008, just before the decision to raise the capital limit for mortgages covered by SMI to £200,000.

The average house price was GBP62,000 when the lower limit was introduced in 1995.

The CML argued that the temporary 13-week waiting period for SMI also increases the likelihood that mortgage arrears will not spiral out of control before help is given, and borrowers stand a better chance of being able to get to grips with their finances once more.

It said that reverting to a 39-week period could also put pressure on lenders to seek a repossession, as lenders routinely extending forbearance could become concerned that they risk breaching regulations.

Last December, the Government said the SMI payments system, which costs GBP400 million a year, is not sustainable and does not encourage people to get on top of their own finances.

The CML suggested that some long-term claimants of SMI could incur a charge levied on their property, to offset the extra burden on public funds caused by continuing the temporary rules.

A Department for Work and Pensions spokeswoman said: “We are committed to supporting people to stay in their own homes when times are hard but we also need to find the right balance between making a reasonable contribution to owner-occupiers’ housing costs and providing value for money for the taxpayer.

“We are looking at how the scheme should operate in the future and we will provide an update on future policy as soon as possible.”

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